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June 12, 2015
Pavitra Kumar Authors Article on Hedge Fund Characteristics and Performance Persistence

Senior Associate Pavitra Kumar recently published an article investigating the association between select hedge fund characteristics and persistence in positive and negative abnormal returns. The article, “Hedge Fund Characteristics and Performance Persistence: Evidence from 1996-2006,” was published in Volume 5, No. 2 of the Quarterly Journal of Finance (June 2015).

In her article, Dr. Kumar analyzes the relationship between hedge fund characteristics and performance persistence using data from the TASS database between 1996 and 2006. She finds that higher fund age, size, and illiquidity, after controlling for risk, generate stronger persistence in both short- and long-term positive abnormal returns, or good performance. Therefore, these features appear to signal superior managerial and/or fund skill. Furthermore, funds with higher incentive fees display greater long-run persistence in both good and bad performance, net of fees. These results suggest that incentive fees are increased by both skilled and unskilled, but lucky, funds following good past performance.

The Brattle Group has provided expert testimony and consulting services on numerous cases and enforcement actions pertaining to the performance of hedge funds and investment companies in general. Regulators and plaintiffs have always been concerned with how mutual funds, hedge funds, and private equity funds set and compute fees and expenses, and whether these practices are adequately disclosed. In addition, litigation concerning fund performance often arises when investment companies suffer large losses or fail to perform, and a fund’s investment strategies and risk management practices are questioned. Economists at Brattle have assessed the reasonableness of fees, analyzed the trading strategies, investment guidelines, and disclosures of failed funds, as well as related valuation issues. We have also computed losses related to trading practices and errors, analyzed investment and exit strategies, performance, and valuation of portfolio companies and evaluated the investment risk of various hedge fund strategies.

The full article can be read here.